Q3 and Beyond: The Global Economic Outlook is Shifting

By Jim Meszaros

At the start of Q3, recovery from the COVID-19 pandemic, the war in Ukraine and continued supply chain disruptions have magnified a slowdown in the global economy. The IMF, World Bank and OECD have each recently revised their global outlook to forecast a protracted period of weak growth and elevated inflation. This raises the risk of stagflation, with potentially harmful consequences for middle- and low-income economies. Global growth is expected to fall from 5.7% in 2021 to 2.9% in 2022 — significantly lower than the 4.1% forecast in January — with several countries facing a recession in 2023 or sooner. Various risks, including geopolitical tensions, financial stress and stagflation, require global companies to rethink business operations, investments and workforce conditions.

Here is what to watch in Q3 and beyond:


Large banks, prominent economists and former government officials are saying a recession is now likely during the second half of the year or in early 2023 as the Federal Reserve seeks to bring inflation under control. Three-quarters of Fortune 500 CEOs are braced for growth to be negative before the end of 2023. Experts disagree on whether the recession will be a soft or a hard landing. Business balance sheets remain strong, but Q2 financial reports may illustrate a shift in revenue and profits. Consumers accumulated savings during the pandemic but are now drawing down these in the face of higher energy, food and other prices. Risks in the financial and real estate markets appear manageable. The labor market remains tight for now, although this will change as growth slows and companies slow down their hiring and consider layoffs.


Risks to the economic outlook are mainly on the downside for the rest of 2022. Growth is expected to slow sharply to 2.5% in 2022, following a post-pandemic rebound of 6.7% last year. The forecast will decelerate further in 2023 to just 1.9%. The slowdown reflects tightening financial conditions, weakened external demand, inflation and policy uncertainty resulting from elections. Economic models forecast a recession in Chile, Colombia and Brazil. Some markets may benefit from rising prices of hydrocarbons, raw materials and agricultural products. But gains will be offset by inflation and lower growth in the region’s main trading partners — China, the United States and Europe.


The economy is forecast to grow by 3.6% this year, followed by 0% growth in 2023. The new UK government is facing a summer of labor unrest. Unions warn strikes will spread across the economy unless the government backs pay rises to counter inflation, now running at more than 9%. Ministers are worried every pay settlement will become a benchmark for the next negotiation.


Recession fears are growing. The war in Ukraine and its repercussions are reverberating through commodity and financial markets, trade and migration, and business and consumer confidence. Euro area growth is projected to slow to 2.5% in 2022, as supply shocks caused by the war in Ukraine weigh on economic performance. Higher energy prices (and possible shortages later this year), supply disruptions and tighter financial conditions are weighing in on growth — which is projected to moderate further to 1.9% in 2023, as the European Central Bank tightens monetary policy and lingering repercussions of the war weigh on business activity and consumer confidence. The ECB foresees inflation at 6.8% in 2022, declining to 3.5% in 2023.


Growth in emerging markets has been downgraded to 3.4% as negative spillovers from the war in Ukraine more than offset any near-term boost to commodity exporters from higher energy and food prices. Looking ahead, there is essentially no rebound projected for 2023: global growth is forecast to edge up only slightly to a still subdued 3% in 2023 as headwinds such as high commodity prices, monetary tightening and worsening public debt persist.


The forecast has been revised downward to below 8% in 2022. In response, government spending is shifting toward infrastructure and logistics investments, labor regulations are being simplified and underperforming state-owned firms are being privatized. The government has extended food support to low-income households, reduced taxes on fuels and reduced import duties on several products.


Economists say growth should pick up this year because of stronger domestic demand. Looser COVID-19 restrictions will boost private consumption, while business investment recovers. However, the economy will remain below pre-pandemic levels. A weaker external sector will be a drag on momentum. Economists now forecast the economy will expand by 2.0% in 2022 and just 1.8% in 2023.


The export index in April recorded its largest drop in two years due to the Ukraine war and COVID-19 lockdowns in China. GDP is now forecast at 2.7% in 2022, down from a 3.0% outlook from last December. The government is trying to accelerate an inflow of foreign workers to alleviate labor shortages.


Growth slowed sharply due mainly to COVID-19 lockdowns, but there are now signs of a recovery in the manufacturing, services and logistics sectors as major cities have reopened. China is expected to grow by 4.3% in 2022 and 5.2% in 2023. The forecast was recently downgraded 0.8 percentage point, reflecting damage from COVID-19 lockdowns. Future lockdowns across major cities would further curtail what is still a fragile and uneven recovery.

Jim Meszaros


Washington DC | International consultant to governments, multinational corporations and foundations on global economic, trade, development and climate issues.

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